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Published in: Review of Quantitative Finance and Accounting 1/2024

29-10-2023 | Original Research

Corporate social responsibility and myopic management practice: Is there a link?

Authors: David K. Ding, Christo Ferreira, Vu Minh Ngo, Phuc V. Nguyen, Udomsak Wongchoti

Published in: Review of Quantitative Finance and Accounting | Issue 1/2024

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Abstract

A Corporate Social Responsibility (CSR)-myopic firm is one that experiences greater-than-normal operating profits but scores worse in its CSR ‘strength’ or ‘concern’ rankings than is normally expected during the same year. We show that myopic behavior in CSR concerns (strengths) are positively (negatively) related to myopia in other conventional discretionary investments such as marketing, R&D, and capital expenditures. We find that large, highly leveraged firms are less likely to be myopic regarding CSR concerns and other discretionary investments; such firms are more likely to engage in myopic behaviors concerning CSR strength. Myopic firms tend to have lower contemporaneous and future risk-adjusted abnormal returns.

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Footnotes
1
Studies by Becchetti et al. (2012), Chatterji et al. (2009), Galema et al. (2008), Hillman and Keim (2001), and Statman and Glushkov (2009) have used the KLD ESG dataset.
 
2
Missing values are coded as zero to ensure a robust sample size; the results are not affected.
 
4
It should be noted that the CSR measure in the study is not in dollar terms (as in marketing, RandD, and Capex). Rather, it is the CSR intensity reflected in scores reported by the KLD ESG ratings. It implicitly serves as all costs (financial and non-financial) incurred in the CSR process of a firm. The direct expenses of CSR are not available but would be useful for future research.
 
5
See Lilling (2006) for detailed technical justifications of the use of system GMM methods on financial panel data. Lilling employed a first-differenced system GMM regression to address endogeneity, persistence, and firm effect.
 
6
We standardize Mktg. RandD, and Capex over Total Assets when reporting correlations between raw discretionary expenditures and the CSR variables, yielding significantly better results.
 
7
This could be due to lobbying and activist pressure, which could lead to sub-optimally high levels of strength.
 
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Metadata
Title
Corporate social responsibility and myopic management practice: Is there a link?
Authors
David K. Ding
Christo Ferreira
Vu Minh Ngo
Phuc V. Nguyen
Udomsak Wongchoti
Publication date
29-10-2023
Publisher
Springer US
Published in
Review of Quantitative Finance and Accounting / Issue 1/2024
Print ISSN: 0924-865X
Electronic ISSN: 1573-7179
DOI
https://doi.org/10.1007/s11156-023-01212-w

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